Third Country Branches Regime Under The CRD 6

• Published date: 04 April 2024
• Subject Matter: Finance and Banking, Wealth Management, Financial Services, Wealth & Asset Management
• Law Firm: CMS Luxembourg
• Author: Ms Aurelia Viemont, Sarah Hantscher, Mélanie Poirrier and Anne Picot-Guillot

Discussions regarding the proposal for a Directive of the European Parliament and of the Council amending Directive 2013/36/EU (Capital requirements directive, 'CRD') as regards supervisory powers, sanctions, third-country branches ('TCBs'), and environmental, social and governance risks, and amending Directive 2014/59/EU (Bank recovery and resolution directive, 'BRRD') (the 'CRD 6') are well advanced.

In this alert, we will focus on the regime applicable to entities established in a third country (i.e. outside the European Union - 'EU') and notably the prudential supervision of TCBs under the CRD 6.

TCBs refers to branches established in a Member State by either (i) an undertaking which has its head office in a third country for the purpose of carrying certain activities or (ii) a credit institution which has its head office in a third country.

Third country undertakings are required to establish a branch and apply for authorisation to commence or continue conducting certain activities¹ in the relevant Member State. Exceptions to such principle pertain to (i) the provision of investment services and activities as set out under Directive 2014/65 on markets in financial instruments ('MiFID II'), (ii) the provision of banking services on a reverse solicitation basis, (iii) the provision of services or activities to a credit institution established in the EU or (iv) to an undertaking of the same group.

TCBs are classified into two categories (class 1 or class 2) depending on their total value of the assets and the amount of deposits and other repayable funds.

The authorisation process of a TCB requires the latter to comply with certain requirements including (i) capital endowment (depending on the classification of the TBCs), including specific requirements on the nature of the assets, (ii) liquidity requirements and (iii) internal governance and risks controls.

TCBs have at least two persons in the relevant Member State effectively directing their business subject to prior approval by the competent authorities. Those persons are of good repute and possess sufficient knowledge, skills and experience and commit sufficient time to the performance of their duties. Depending on their classification, TCBs may be required to establish a local management committee to ensure an adequate governance of the branch. TCBs establish reporting lines to the management...